Friday, March 3, 2017

How to Make $2,000 a Month Profit on eBay - The Math of Getting to Your eBay Goal

I get this question all the time so it's time for a blog post! When you want to get your eBay business to a certain level of profit (notice I did NOT say sales), you have to work backwards to figure out what is necessary to get you there.

This is basic math. And if you are not good at math or are confused my math, I have some bad news. An eBay business is all about math. So it is time to learn math, or find someone who can help you understand this.

I talk to sellers all the time and am shocked by how little they know about their business. Think about it this way: You need a recipe to bake a cake. You don't just start throwing eggs and flour in a bowl and hope for the best. You need blueprints to build a house. You don't just start nailing boards together and stringing electrical wire haphazardly. But this is what I see on eBay. Sellers throwing stuff up for sale with no plan and with arbitrary numbers of what they think they can achieve with no roadmap to get there. Something like:

I'm gonna go to the thrift store and get stuff for $2 a piece and sell it for $25 and make a bunch of money.

Sorry folks, it just doesn't work that way. The blunt truth is:

YOU WILL FAIL AT ANY BUSINESS IF YOU DO NOT KEEP RECORDS AND DO NOT KNOW YOUR NUMBERS.

You need to know two critical pieces of information about your eBay business. You cannot guess, you must do the research and KNOW.

1. Average profit per item

2. Percentage of listed inventory sold each month

Let's remember that sales is NOT the number to strive for. Sales don't pay the bills, profit does. You could sell $10,000 in jewelry but if it cost you $9,999 you aren't making any money. If you ever watch Shark Tank, contestants will go on the show and throw out huge numbers about their sales, and the first thing the Sharks ask is, "How much did you keep, what is your profit per item?"

So, you need to know average profit per item. That is why you should devise some kind of system to track your sales, per item. Yes, per item. This is tedious and takes time, but it is necessary to make wise decisions about your business. Do it however you like. (Or use this spreadsheet I have been using since 2011.) Look at a 3 month average, 12 month average if possible to account for all the cycles in a year.

Next, you need to know the percentage of your TOTAL LISTED inventory that sells every month. Unlisted stuff doesn't count, because nobody can buy it and you aren't paying fees on it. (Get that stuff listed so it can sell!) So if you have 500 items listed, and you are selling 50 items a month, you are selling roughly 10% of your inventory (because you are also buying and adding to it, but close enough for our purposes here).

Then, you work backwards with information you already have to figure out what you need to do to get to your goal.

Let's look at some examples - assuming sellers are using 30 day fixed-price or GTC listings.

Scenario #1

Rebecca sells clothing and her average profit per item is $18. She keeps about 200 items listed at all times, and sells 30 items a month. Using these numbers we can figure her monthly profit:

She is making $18 x 30 = $540 a month and selling 15% of her listed inventory.

She wants to get to $2,500 a month profit. So, based on these numbers we need to figure out how many items at $18 profit each she needs to sell to reach $2,500.

Divide desired profit number / profit per item:

$2,500 / $18 = 139 items

Then we need to look at how many LISTED ITEMS will support that number if 15% of them sell every month, because that is her sell through rate:

15% of X = 139

X = 926

She needs to consistently keep 926 items listed, sell 15% of them (139 items) and maintain her $18 per item profit to reach $2,500 profit per month.

$18 x 139 = $2,502

Scenario #2

Maggie sells craft kits. Her average profit per item is $10. She keeps 350 items listed at all times, and sells 100 items a month. Using these numbers we can figure her monthly profit:

She is making $10 X 100 = $1,000 a month and selling 29% of her inventory.

She wants to get to $3,000 a month profit.

Divide desired profit number / profit per item:

$3,000 / $10 = 300

Then we need to look at how many LISTED ITEMS will support that number if 29% of them sell every month, because that is her sell through rate:

29% of X = 300

X = 1,034

She needs to consistently keep 1,034 items listed, sell 29% of them (300 items) and maintain her $10 per item profit to reach $3,000 profit per month.

Alternative to Increasing Number of Items in Inventory

The alternative to increasing number of items sold is to increase profit per item - find more expensive things to sell. You are doing the same amount of work on a $10 item that you do on a $100 item. This is why I encourage diversifying and pushing yourself out of your comfort zone. It is much easier to sell a wide variety of things to people around the globe than to specialize in one narrow niche with only a few customers.

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